28 February 2009

Wisdom from Meditation

Happen to chances upon this YouTube video and I find it meaningful for sharing, especially the words of wisdom embedded in the video.

The words of wisdom are:

"Change your thoughts, and you change your world."
- Vincent Peak

Being able to control our mind, is the key to growth.



"When I Stop Learning, I Stop Living."

23 February 2009

Yield Curve - A great tool or just an indicator

I was attending my Certified Financial Planner (CFP) Module 4 lesson just now and my lecturer, Ng Lye Heng, shared on the Yield Curve. The curve seems to be a good economy management tool as the US Feds Reserve is using it for guiding their actions. Or is it also a good indicator for layman like me to see that something big is brewing... ;-)

From Investopedia.Com, I extracted the definition of Yield Curve as follows:

"A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth."

The definition above sounds pretty chiem (pronounce in hokkien language for "complex"). Yield Curve is also known as Term Structure of Interest Rate.

Yield Curve takes serveral shapes too. If you visit Investopedia.Com, the picture in their website defining yield curve is a normal yield curve. There are also a flat yield curve and an inverted yield curve. The fact is, the shapes of the curve is determined by investors' expectations of the Interest Rate!! (Oh... you mean we have the power to influence the curve?)

So the question here is, what's in it for me, a layman investor? How can i use the yield curve to my advantage?

There is a market saying, "When the yield curve becomes inverted, there is a 90% chance of a recession, within the next 18 months."

Since US is already in recession, i thought might as well use this opportunity to verify this statement above. There is this webpage on StockCharts.Com that animates the yield curve data since 2001. Wow! You can literally see the yield curve animates from a normal yield curve in year 2001, turning into a flat curve at the start of year 2006, and finally an inverted yield curve in late 2006 lasting thru early-2007. Recession in US was officially announced as starting as early as in Q308. S&P500 started crashing after the inverted yield curve sayed on for while. Hmm... Not bad as an indicator of something huge may be coming! ;-)

So lesson learnt? To look out for the next potential financial disaster, keep the yield curve as one of the monitoring tool in your tool box.

What's your view on Yield Curve? How are you using it to help you in your investment? Maybe you will like to share with me how the yield curve benefitted you, by leaving behind your comments. :-)


"When I Stop Learning, I Stop Living."